Peak oil Primer

I mentioned the issue of peak oil in a previous post. Peak oil could well rate alongside global warming (or a major disease pandemic) as one of the most pressing challenges civilisation currently faces. Unfortunately, mention peak oil to most people (including journalists) and they turn out to be clueless as to what it actually means and why its significant.

Also the opinions on it tend to be divided between the extremes. In the blue corner we have the Peak oil pessimists, who will tell you the sky is about to fall on our heads. The more extreme amongst this group believe in a post oil collapse of civilisation, a so called Malthusian catastrophe, so named after the 19th century economist and Philosopher Robert Malthus. Such individuals are often termed “doomers” on the internet blogs (for obvious reasons!). In the red corner we have an equally extreme view in the form of the Cornucopian’s, many of them economists, who argue that resources are effectively unlimited, that price and economics will drive recycling of said resources and ensure someone goes out and finds new resources, or it will spur on the development of some new technology to replace scarce resources.

Obviously the truth inevitably lies between these two extremes, but where is the question (are the peak oil pessimists a just little off in their calculations, or completely wrong). I’ll attempt in this post to go through the issue of peak oil and its likely outcomes with a sort of FAQ style Q & A system, perhaps enlightening the reader on the matter. But don’t take my word for it, the point of this post is to get people thinking, do you’re own research and draw up you’re own conclusions:

Question 1 – What is Peak Oil?
 
Question 2 – What’s the difference between conventional oil and unconventional oil?
 
Question 3 – Why is peak oil significant?
 
Question 4 – What are the Consequences of Peak oil?
 
Question 5 – Why not wait and see if peak oil happens and then worry?
 
Question 6 – But the OPEC countries claim they have vast oil reserves, Saudi Arabia reckons it will be the latter half of this century before they “peak”, if indeed they ever do?
 
Question 7 – Hang on? The USGS (US geological survey) says that peak oil won’t happen till 2030. Shouldn’t we trust the experts?
 
Question 8 – How do we know that the theory of peak oil is correct?
 
Question 9 – We’ll know Peak oil’s happened when the light go out, right?
 
Question 10 – So when will we know we’ve passed peak oil?
 
Question 11 – But I read the other day about this big oil find in Falklands/North Sea/Laalaa land, where they say that 10 Billion barrels of oil have been found, surely that’ll sort everything out?
 
Question 12 – Assuming peak oil happens soon, what sort of depletion rate are we facing?
 
Question 13 – All this stuff about bbl/day, mtoe, cfg’s, STC’s is too confusing, what do all these numbers mean in real terms?
 
Question 14 – You said that only 35% of the oil in a field is typically recovered, why can’t we go around and suck out some of the remaining 65%? Even if we could get say 20% (of the 65% = +13%) of that out it would greatly increase out supply of oil?
 
Question 15 – It’s all the Liberals fault, if they’d let the oil company’s drill in the ANWR or build new refinery’s everything would be fine!
 
 
 

Question #1 – What is Peak Oil?

The short summary is that it represents the point when global oil production will exceed its maximum possible output levels. It doesn’t mean we’ve run out of oil, far from it there’s plenty of oil left. Its more a matter of supply being no longer able to keep pace with demand. Unfortunately, we cannot simply suck oil out of the ground at any arbitrary rate we choose.

 
Figure 1 – Typical oil production plot for the lifetime of an oil field

As an oil field is developed oil output steadily increases as we drill more wells, add pumps, etc. However eventually this production output rise starts to tail off, then it levels off. Why?

Various factors are to blame, as more oil is pumped the pressure below ground begins to drop, drilling more holes can temporarily offset this drop in output, but beyond a certain point it causes a further acceleration in this drop in pressure. Eventually simply pumping the oil out will not suffice, you need to inject something underground (water, steam, carbon dioxide, natural gas, whatever’s available really!) to try and force the oil out. Injecting stuff into the well though gradually dilutes the oil. Also the only reason we have oil reserves is because the oil is trapped between two layers of rock. The geological changes brought on by drilling can alter the geology below ground which can further hamper production.

Typically, in anticipation of these problems oil production will be purposely tailed off at some level below the maximum production level (hence the flat plateau on my graph above), in order to increase the useful life time of the well, plus increasing the amount of oil ultimately recovered from that oil field (we produce less oil per day, but keep the well open for longer meaning we ultimately get more out during the lifetime of the project). In a typical oil project between 25-45% of oil is recovered, the rest stays underground, with around 35% being the current industry average. Eventually, despite our best efforts the continuing depletion of oil within our field causes production to begin to slide downwards. From this point onwards, no matter what we do, no matter how many holes we drill, production will inexorably continue to fall. Eventually the cost of production (both financial and in terms of the energy invested v’s energy returned, often called the EROEI ratio) no longer makes the field viable. It is subsequently capped and the oil drillers move on to the next prospect.

Figure 2 – Hubbert Curve, individual v’s Regional wells, [Credit: BP Blogspot]

The life of our oil field follows a bell shaped curve (as shown above). Back in the 1950’s a petroleum geologists called M. K. Hubbert realised that you could use this bell shaped curve to predict the long term output from individual oil wells, fields, or even oil producing provinces and ultimately whole countries. He thus predicted that sometime in the 1970’s the US (then the world’s largest oil producer and exporter) would hit peak production.

Figure 3 – Dr Hubbert’s Original 1950’s graph for US oil production [Credit: The Oil Drum]

Nobody took Dr Hubbert seriously until the early 80’s….when it was realised that low and behold oil production in the lower 48 states had peaked in 1971! Hubbert when on to predict a global peak in oil production sometime around the year 2000 (see below).

 
Figure 4 – Modern extrapolation of Dr Hubbert’s graph for the entire planet [Credit: Wikipedia]

Hubbert’s predicted peak in oil has did not occur in the 2000s. But this is probably due to an underestimation by Hubbert (in the 1960’s mind!) about just how much oil the world possessed, as well as the effects of the 1970’s oil shocks. These pushed up prices such that consumption actually dropped (briefly!) and the higher prices made a lot of smaller fields that were previously uneconomic to drill viable (thus increasing the supply of available oil). Improvements in drilling technology also helped. While these factors served to push back the date of global peak oil they have not necessarily prevented it. Consequently, many of Hubbert’s disciples and acolytes have attempted to perform a more accurate assessment of global oil reserves.

Figure 5 – Various Estimates of impending peak oil from a variety of sources (2006) [credit: Fred Matter, wwwtrendlines.com] Note that the IEA have somewhat rowed back from their prediction above since publication of this graph

For some time now the estimates for the timing of peak oil have varied wildly. But recently the estimates (from the so-called peak oil “pessimists”) have started to converge at pointed between 2005 – 2012. This is significant, as the IEA’s 2009 assessment of oil reserves included an admission that conventional oil production has been flat since 2004 with a slight peak at 2006, despite the huge jump in prices in 2007. All recent growth in oil production since 2004 has come from the messy and more expensive unconventional oil sources (Tar Sands, Heavy Oils, Natural Gas Liquids, etc.). The IEA have also slashed they’re long term growth forecasts for oil production, as it now seems unlikely that previous forecasts will be met. The often quoted figure of 120m bbl/day by 2030 now seems unlikely, with the IEA now forecasting just 96m bbl/day by 2035.

Figure 6 – IEA World future oil production scenarios [Credit: IEA 2010 & crudeoilpeak.com]

This is something of an about face for the IEA. This paper by Miller (2011) in Energy Policy Journal gives a flavour for how the IEA’s policy has shifted. As one blogger points out:

“If you go to the executive summary of the 2009 International Energy Agency World Energy Outlook, and search for “peak oil”, your browser will come up empty…..However, yesterday (at the time of writing), the 2010 IEA World Energy Outlook became available.  And if you repeat the exercise in the 2010 executive summary, you will come upon a section titled: Will peak oil be a guest or the spectre at the feast? Followed by an explicit discussion of the whole question…..”

This would be mildly amusing if it weren’t for the fact that the whole point why the IEA was formed, in the 1970’s, was to ring the bell in advance of a future energy crisis. Yet one gets the distinct impression that they may have been asleep at the wheel!

Recently, the IEA 2011 report was issued and it contained yet further doom and gloom, although they do appear to be sticking to the figures presented above. They also rather unusually devoted a lot of effort towards talking about the risk posed by climate change as well as talking up the potential of renewable energy (previously I recall a 2004 conversation with a IEA official who told me that relying on renewable energy “was silly”).

The peak oil theorists would also strongly question whether even this revised 96m bbl/day by 2030 forecast is feasible. Their view is that the output from unconventional sources of oil is nowhere near sufficient to offset depletion in the major conventional fields. Recent wikileak e-mails cast doubt as the claims of Saudi Arabia as to how much oil they have left and how much they can actually pump, something which merely confirms suspicions that many have held for many years.

 

Question #2 – What’s the difference between conventional oil and unconventional oil?

Conventional oil is basically the normal black stuff we’re familiar with. Most of the world’s oil endowment (both conventional and unconventional) was formed in a few brief periods of extreme global warming that occurred between 260 million to 65 million years ago. We have all but exploited or found most of the major conventional oil fields as there are only a handful of places on the planet with the right geology to allow the oil source material to accumulate (generally sediments formed from dead plant matter and microorganisms that accumulated on ancient sea or lake beds). This source material must then be (gradually) buried underground, transported deeper under the earth (by tectonic activity for example), cooked for a few million years and then safely trapped and contained within a suitable geological pocket (between two layers of impermeable rocks for example) until we come along and drill our oil well.

Aside from remote places such as in the Arctic, the Antarctic, only a handful of “potential” major conventional oil fields still remain to be found, indeed there are some who say that outside of the poles there are no major oil fields hiding out there, and even the finds in the polar regions will be on a scale not nearly as large as the mega-finds of Texas or the Middle East. Since the 1980’s new oil finds have been heavily outpaced by the depletion of reservoirs (i.e we are using up the conventional oil many times quicker than we find new stuff to replace it).

This has caused people to look at oil sources that we would have otherwise simply not been interested in – i.e “unconventional” sources. Unconventional reserves include such sources as Tar sands, oil shales, natural gas liquids, heavy or extra heavy oils.

Figure 7 – [Credit: Wikipedia based on EIA figures]

Heavy and Extra Heavy Oil

To start off, heavy oils are something like molasses, extremely viscous, sometimes even solid at room temperatures. The major difficulty with these oil types becomes the issue of pumping it out of the ground (which generally involves heating them or injecting stuff in to force the heavy oil out, or a bit of both), or in some cases mining them out of the ground. Additionally there is the fact that the refining process is more complex with heavy oils than with conventional oils producing more pollution and raising the cost of production. The EROEI ratios for Heavy oil tends to be less than that achieved with conventional oils as a consequence of all of this, and the resulting carbon emissions are frequently higher.

 Figure 8 – Heavy oil extraction aided by steam injection [credit: Oil & water website]

Tar and Oil Sands

Oil sands (or tar sands or Bitumen) are basically a mixture of moisture, soil, sand, clay and heavy oil. They are usually the consequence of oil escaping at some point in the past from its underground source rock and migrated up to the surface. Here it became mixed with soil and also came under attack from the biosphere. Given a few more tens or hundreds of thousands of years it would all get broken down into an unusable form (this is the same mechanism that has over the last 250 million years destroyed much of the oil that ever formed on this world through geological history, only a tiny fraction survived to the present day). One of the largest of these “tar sands” reserves is in the Athabasca region of Canada.

Figure 8 – Oil Sands Extraction process [Credit: Greenauto.com]

The production problems are similar to that with Heavy oils, just worse. Generally you have to mine the stuff out of the ground, then filter it and wash it to remove the solid elements and water trapped within. Then it needs to be refined further to produce a synthetic form of crude oil, which is sent for processing in a refinery. The major problem becomes, the environmental pollution caused by mining and processing, as well as the large quantities of energy consumed by this process, meaning you’re energy payback from oil sands (EROEI) isn’t nearly as good (indeed its usually an order of magnitude less) than you get with conventional oil. This also means you need a substantial source of energy to power you’re oil sands extraction process, and the carbon emissions resulting from this process are increased (some figures say Tars sands produced 40% more to four times more the greenhouse gas emissions compared to conventional oil).

Figure 9 – The mess left behind by Tar sands extraction

It also requires substantial quantities of water, both to aid in oil processing, but also to “flush” away the many dangerous chemicals resulting from Tar sands processing….this “flush” often being directed into mountain rivers and streams, so not very good for the environment (I mention the issue of Tar Sands in more detail article with this at Green Blog here).

Natural Gas liquids

When an oil well is drilled, you frequently get a mixture of oil and gas. In some cases this gas is burnt off at the well head or re-injected underground. Only when there is a gas network nearby is it profitable to pump it into that grid and sell it. Similarly, many gas wells contain some small liquid portion, which can be refined into crude oil quite easily. Thus, “natural gas liquids” is simply the liquid portion coming out of gas wells that is being tapped rather than discarded. It is a resource that we’ve been using since at least the 1980’s and is hence proven technology. Indeed its so widely used these days, that many oil experts argue it should be considered a “conventional” oil source rather than an unconventional source. The one disadvantage of NGL’s is that extracting it sometimes involves compromising the production of Natural Gas from the well, although in many cases there is a simple economic trade off. NGL flows are also dependant on the gas industry and its continuing rise in output, which will not continue indefinitely.

Oil Shale

Oil shale is basically rock (sedimentary type) with substantial amounts of organic hydrocarbon bearing material trapped within (notably Kerogen, one of the building blocks of oil). By mining shale, and then basically cooking it at high temperature (in an oxygen deprived furnace…otherwise it will just catch fire itself!) you can liquefy the hydrocarbon elements and collect them, then process the resulting mixture into crude oil. The reserves of oil shale are quite large, and are conveniently located in countries like China, the US, Estonia and Brazil. The major problem is, the pollution effects of mining and the enormous amounts of energy you need to consume in order to process it into oil (there are some who question as to whether this yields a net positive EROEI outcome, in other words you might well end up expending more energy mining and processing oil shale than you usefully get back burning it as a fuel!). A detailed article here from the oil drum website gives a good update on where we are as regards shale oil.

 Figure 10 – Oil Shale [Credit: Wikipedia]

Coal to Oil

Finally, while not really an oil source, it should be noted that you can process coal into oil using a variety of techniques, such as the Fischer-Tropsch process. Developed in the 1920’s it is “proven” technology, although critics would claim the only thing “proven” is that it’s a waste of time!  The energy and quantities of coal consumed, plus the emissions produced are quite significant and the only countries that have ever used it in any way are Nazi Germany during WW2 and South Africa during Apartheid, both of whom only did so as they had little other alternative sources of oil.

      

Figure 11 – Schematic of the Fischer-Tropsch process [Credit: Blog.cafefoundation.org]

 

Question 3 – Why is peak oil significant?

Because it represents that fact we have passed a threshold where we could essentially drill our way out of oil shortages (a couple of good graphs on this topic here). In the early days of the oil age we went after the “low hanging fruit” first. The big mega fields like West Texas, or Ghawar Field (Saudi Arabia) were found and drilled pretty early on (obviously being the biggest target simple probability says they were always more likely to be found first). What’s left is mostly concentrated in smaller fields, and indeed most of the oil that remains is in the form of those “unconventional” reserves discussed earlier.

The problem thus becomes an issue of sustaining output at its current levels, which becomes increasingly difficult over time, nevermind actually increasing output (which we need to do to maintain economic growth). In essence it’s the law of dismissing returns in action. These smaller fields don’t have the high EROEI ratio’s and the economies of scale that the big oil fields once gave us.  Similarly the EROEI’s for unconventional sources tends to be much worse than those for conventional sources.

The tar sands are a classic example. Even the most optimistic projections suggest a EROEI for the Tar sands of between 6 and 9 (the more negative estimates by critics put it at 5-0.7) which must be compared with figures of conventional oil wells which give EROEI ratios in the range of 200-20. Note that an EROEI of anything less than 5-3 can potentially mean a net loss of energy, once you account for cycle efficiency when the fuel is ultimately consumed. Via the Rankine Cycle (power station 45% efficiency) an EROEI of 2.2+ is positive, while you need an EROEI of 4 if utilising the Otto cycle (car engine, 25% efficiency) to gain a net positive outcome.

Thus in order to utilise the Tar sands (and other unconventional oil and gas supplies) substantial amount of energy will have to be devoted purely to oil extraction. And of course if the critics are right (anything less than an EROEI’s of 4) they will become a net energy sink rather than a resource.

Tar Sands use would at least double the relative CO2 emissions from each barrel of oil (not a good idea if we’re to fight climate change). However, the real problem with the Tar sands is that the maximum production rate that the main Alabasca region will be capable of sustaining (according to its supporters mind, the environmentalists give much lower figures) is a mere 5.1m bbl/day by 2030 – roughly 6% of current global production (5% of projected 2030 demand)….so where do we get the remaining 93-95% of the world’s oil from?

The short answer is, we don’t! once the large conventional oil fields peak, the world will enter into a permanent state of oil production decline. While the unconventional sources may help, the projections of the IEA are wholly over optimistic. Global oil output will inevitably begin a process of slow gradual decline sometime soon…. the only question is define “soon”….1 year? 5 years? 20 years? More on that later.

 

Question 4 – What are the Consequences of Peak oil?

The problem is if oil production declines as described, that’s potentially bad news. The economic growth of the world since the end of the 2nd world war has been largely fuelled by the cheap availability of oil and petroleum derived products (short video on that here). Our entire civilisation is built around the use of oil, and there’s a strong probability we will not be able to sustain our current economy without it.

Simple test, imagine try going a day without oil. Obviously that would rule out use of a car and certain modes of public transport (buses, diesel powered trains in some countries), ships and air travel. Much home heating is supplied by either oil or gas. Indeed most of the natural gas in the world comes out of the same wells as the oil (that’s why gas prices rise with oil prices), so strictly speaking you should turn off the heating too. Most goods  we buy in the shops were either made with the use of substantial quantities of oil, not to mention the oil used to transport it from the factory (in China!) to the store. This includes anything made of plastic, but also most foodstuffs (in the form of pesticides while it grew, fertilisers, farm machinery, processing in the plant, packaging, transport, cooking, etc.). Indeed some studies have suggested that it takes more hydrocarbon energy to make food these days than we get back from the food after eating it….so no shopping, nor eating for the day, other than what you can guarantee was grown completely organically in a carbon neutral way.

Figure 12 – What’s in a Barrel of crude oil: A break down by unit volume [Credit: Energyquest Canada]

Also many high tech gizmo’s go (such as computers, mobile phones, etc. = plastics=oil)….as does your clothes…artificial fibres (Nylon, Acrylic, polyester) are all made from oil….oh! and there’s the embodied energy in your car or house, some of which will inevitably come from oil (insulation material for example)….so by the end of the oil free day (if you last) you could well find yourself standing outside, naked, with no food, or anything other than a big sharp stone….not a fun way to live!

 
Figure 13 – A Cow next to the amount of oil consumed breeding it (3/4’s of a gallon of oil for 1 lb of beef according to National Geographic)

Granted, I’ve exaggerated the situation somewhat, but the simple fact is that our civilisation is, as George Bush put it “addicted to oil”. And like any addiction going cold turkey on oil is likely to be painful, if not impossible. There are it should be stressed alternatives to oil, we did get by perfectly well without oil some 70 years ago, but the problem is the transition between these two states.

Ultimately it is the global transport network, which receives 25% of the worlds energy or 60% of the world’s oil. Thus, approximately 80% of transportation energy comes from oil. The high energy density of oil’s makes it an ideal energy source for transportation systems, particularly those transport modes with a relatively high rate of energy consumption (see graph below). Just to add insult to injury, while we can easily shift some transport systems over to non-oil using alternatives (electric trains, natural gas powered buses) they very things most affected by a jump in oil price (long distance automobiles or airline travel) are the very things hardest to swap over to an non-oil based alternative.

 

Figure 14 – Energy Consumption by speed and performance [Credit: adapted from J.D. Chapman (1989) Geography and Energy: Commercial Energy Systems and National Policies, New York: Longman Scientific & Technical http://people.hofstra.edu/geotrans/eng/ch8en/conc8en/energymode.html ]

The danger with peak oil is that it will become increasingly expensive to maintain these transport links, be that the trans-Atlantic airline link between Europe and America, the trans-Pacific shipping of goods from China to America, the trans-American long distance trucking network, or indeed ones own personal transport link when you drive the 4 miles to the grocery store for a bottle of milk. Post peak oil, these transport links will become increasingly difficult to maintain, and eventually many economic relationships dependent on them will begin to break down.

For example, the suburbs of many cities in the world are largely built around car use. There are some cities in the US, where a car is practically a necessity. Public transport is difficult to implement in these situations, due to the low population density that urban sprawl in the suburbs brings on.

Figure 15 – Typical Gasoline usage per person against the population density of selected cities [Credit: Wikipedia]

And many homes in these suburbs were built at a time of low energy prices and are thus energy wasteful, often requiring large amounts of natural gas or home heating oil to render them habitable during the winter. People in suburbs also not only need their cars to commute to work, but also to get groceries from the supermarket (as in many parts of the west we’ve basically done away with small local corner shops) and these supermarkets are, as noted earlier, heavily dependent on goods shipped in by trucks from far away. Pull out the oil rug and many of these suburbs could simply become impossible to inhabit (good film on that called “the end of Suburbia” although it is a little dated (2004) and alarmist).

 Figure 16 – Urban sprawl in America [Credit: Infrastructurist.com ]

 There are solutions of course, electric cars (see my discussion on this here), biofuels, hydrogen or NG powered vehicles. But all of these (with the exception of biofuels which has its own problems) have shorter ranges and take longer to refuel (negating their use for longer journeys), and are more expensive to run, so generally not practical in all situations (as well as issues of safety).

Another option would simply be to level a couple of city blocks – Yes! simply flatten the outer suburbs of many city’s, as well as knocking down the many energy in-efficient historic buildings in city centres. Then start again from a blank canvas, gradually demolishing and rebuilding our cities according to a more compact, energy efficient floor plan. All well and good of course, unless it’s your home slated for the bulldozer! And who is going to pay for it all? This is the wider point about peak oil, many of our living arrangements and economic policies will simply become unviable if oil supplies begin to decline, and by the time it obvious that this is so we may not have time (nor the resources available) to do anything about it.

 

Question 5 – Why not wait and see if peak oil happens and then worry?

The real insidious danger as regards peak oil is how it will likely just creep up on us. Remember, that the US didn’t know they’d peaked until several years after the event. Similarly, the IEA’s dithering reveals that nobody truly knows what the world’s maximum oil production capacity is. It will likely be many years after peak oil that we’ll be able to definitively say yes we’ve passed it…but of course by then it could well be too late to take effective action.

Anyone waiting for a press conference from the White house Situation room in which the President (whoever he/she is) will say “at approximately 08:06 hrs EST, at GPS co-ordinates 456 678, the world passed the point of peak oil”...forget it! The first time you’ll hear anyone in a position of authority talk about peak oil is only years after it has happened…indeed we may have already heard that line from the IEA (in their 2010 report) as regards the peak in conventional oil!

The problem with waiting till peak oil happens before we start dealing with the crisis, much like a wait and see policy regarding climate change, is that it will likely involve waiting and seeing until it’s too late to do anything.  The Hirsch report (can be downloaded from the DOE website here) makes clear that it would take a comprehensive energy transition program to be implemented 20 years before peak oil hits to mitigate any disruption. Waiting till it’s in the past? the report states could lead to a 20 year or more liquid fuels deficit, with some pretty dramatic consequences for society.

The problem is that all the solutions to peak oil are long term. As mentioned earlier, we can’t simply flatten entire cities overnight and rebuild them the next day, the costs would be enormous! Even the most obvious option, switching over to natural gas, isn’t a simple solution. The Hirsch report pointed out that the value of the US inventory of oil based equipment is in the order of tens of Trillions of dollars (that covers refinery’s, several million petrol stations, a hundred million or so cars, building heating systems, various chemical plants, ships, planes, etc). We simply can’t junk all of that overnight, wave a magic wand and produce another entire set of systems….which in the case of natural gas would themselves need replacing once natural gas sources peak and enter into decline.

Similarly vast arrays of solar panels or wind turbines, or a series of synthetic fuel plants (turning coal into oil…not good for the environment thought) or a major nuclear building program; all of these things are the sort of projects it takes decades to organise and plan, nevermind implement (I’ll address the idea of using fossil fuels or nuclear to transition from Peak oil in Part 2 and Renewables in part 3).

There’s the issue of financing such mega-project (again, we’re talking about tens of trillions of dollars worth of capital to be paid up front!). In the mean time we’ll be stuck with an ever worsening energy crisis, which in itself will make implementing the transition all the more expensive and difficult, or indeed even impossible.

 

Question 6 – But the OPEC countries claim they have vast oil reserves, Saudi Arabia reckons it will be the latter half of this century before they “peak”, if indeed they ever do?

If there’s one fact all the experts will agree on as regards oil reserves, it’s that the vast bulk of what remains is contained within the Middle East. Unfortunately, there are grave doubts by some as to just how much of this oil under the Middle East actually exists and how much of it is in a form than can be produced in an economically viable manner.

Figure 17 – Global Oil Distribution by Region [Credit: BBC News & BP]

Almost every major oil producer outside of the Persian gulf has now peaked and even if current global production remains steady, nevermind increasing, then by 2030 up to 50-60% of all oil production worldwide will be coming from the Persian Gulf (currently it accounts for just 32% of world oil production). Indeed most of this oil will come from just 2 countries – Iraq and Saudi Arabia (the only 2 major oil producers in the region who have the reserves large enough to match global demand). So even if we believe that the OPEC figures are accurate, the fact is we will be heavily dependant on political developments in this volatile region for the foreseeable future. Which is in itself a fairly good reason to start reducing our oil consumption!

As one commentator on the topic concluded “the books on oil have been as cooked as the ones at Enron”. In the 1980’s several OPEC countries produced stunning and sudden increases in reserves, doubling them in many cases overnight. This wasn’t due to any new oil finds or discoveries, it was because of a change in internal OPEC politics which gave a country greater power within the organisation if it held higher oil reserves.

       Figure 18 – Declared oil reserves of selected OPEC countries over time [Credit Wikipedia based on EIA data ]

Furthermore many of these OPEC countries have since then never recorded a fall in reserves, despite the fact they are depleting these reserves (i.e. as they are pumping and selling vast quantities of oil from these reserves). The only way this claim could be valid is if they have been going out and finding exactly the same amount of oil each year to match exactly what was lost in production in that year (bearing in mind that new oil discoveries peaked in the 1960’s). This claim strikes most experts in the field as highly dubious, a few lean years and a fall in reserves followed by a few big hits and reserves going up, we can buy that…but more or less static oil reserves for decades, come on!

Also if, as the Saudi’s claim, there are vast reserves of oil in their southern desert (a region with currently no operational oil fields) why aren’t they tapping it? Why instead did they opt to move into they’re offshore fields in the 1980’s (which is more expensive to produce and vulnerable to attack from their rivals) if they’ve got all this stuff onshore? Is it perhaps because those untapped onshore fields simply don’t exist?

One should finally note that much of the wealth of the OPEC states comes from two things, sale of oil and the fact that they can get cheap credit on the international money markets using these oil reserves as a form of collateral. Thus the Saudi’s and the other OPEC countries, have a perverse incentive to over state they’re oil reserves, so it would not be entirely surprising to learn that they have done so. To what degree they have over stated reserves is the question. If it’s a case of 10-20%, well no big deal, if its 40-60% its a case of WTF!

It should also be noted that most of the pre-1980’s gulf oil figures had been compiled by Western oil companies who (at the time) tended to under-report oil reserves rather than the other way around (better to produce a bit more and surprise shareholders by make a bit more money than come up short and lose money). The jump in OPEC estimates could well be the compass swinging the other way, with the true figure somewhere between these two extremes.

The failure of OPEC to raise oil production back in 2007 when prices skyrocketed is telling. As the wikileaks now show, OPEC were put under enormous pressure from the Bush Adm. (publicly and privately) to pump more oil to offset these prices rises, and with the prices so high they had a strong financial incentive to do so (and make lots of money!). If the OPEC countries had all the oil they claim to have, then with prices at $147 a barrel, why didn’t they pump more onto the global market?

While Saudi production did increase to a maximum of 10.5m bbl/day (they’re current output is 9.2m bbl/day) just prior to the recession it was a tiny rate of increase given the economic conditions and very small compared to what the Saudi’s frequently claim – that they can raise production up to 20m bbl/day and keep it there for years if necessary. If so, then again we ask the question, why didn’t the Saudi’s (or the other OPEC states) increase production when oil prices recently skyrocketed? There are three possible answers:

1)  They didn’t increase production because the Saudi’s and their OPEC allies want to maintain an artificial shortage in order to increase profits. If this is true then we need to think twice about getting hooked on OPEC oil in the future (given what was said about future reserves), as they clearly have no qualms about engaging in blatant price gouging the like of which would have Rockefeller shaking his head in disgust.

2)  They didn’t raise production because the valves were already fully open! 10.5m bbl/day is the most we’re ever going to get out of the Saudi’s. Once they do peak, production will decline well below this figure.

3)  The Saudi’s do have some spare capacity, but not nearly as much as they claim. A figure closer to 12m bbl/day is probably closer to reality (according to many energy insiders) and they could probably only maintain this for a short period of time (months, rather than years). Obviously if this is true, the Saudis realise they need to maintain some spare capacity to deal with any future emergency (external or domestic) and hence, they aren’t going to put this spare capacity on the market any time soon, regardless of what the price does. Indeed if consumption continues to rise then eventually even this “spare” capacity will be eaten away. If they exceed peak production soon, then demand will outstrip supply all the sooner.

In truth I suspect that the leaders of the OPEC states are simply as clueless as to how much oil they have remaining as the rest of us. How much they ultimately produce is entirely dependent on a host of geological, political, technological and economic factors. The US had no idea that they’d peaked until the 1980’s – ten years after the event. To expect the rulers of the Gulf states to possess some form of crystal ball into the worlds future, isn’t really being fair to them.

And even if they do know that their reserves are woefully inadequate, you would be assuming that they are prepared to put the world’s interests before their own. One of things that came out about the various recent financial scandals (Enron, Worldcom, Sub-prime, Madoff, take you’re pick) in recent years was how many in the markets knew something just didn’t seem right, but they kept on buying or recommending the stock in question because, well surely the executives at the company in question would tell everyone if something was wrong! Of course instead these executives sat around in forlorn hope of some miracle coming along to save them, while actively seeking to hide the scale of the problem from their creditors.

It could well be that many Gulf state rulers know that supplies are getting tight, but like the executives at Enron, they have convinced themselves that something will miraculously come along and safe them. That’s there’s another couple of Ghawar Field’s hiding out there (despite a succession of dry holes drilled since the 70’s), or that some new energy technology will come along and kill off oil demand to levels that they can sustain.

It is in short highly unlikely we will know we’ve passed peak oil until we are well into a rate of terminal decline. Even then I’d expect some kind of fiddle e.g. OPEC will declare the’yre final convinced about global warming and the threat it posses and are unilaterally cutting production for environmental reasons!

 

Question 7 – Hang on? The USGS (US geological survey) says that peak oil won’t happen till 2030. Shouldn’t we trust the experts?

Yes we should trust the experts, but unfortunately the USGS figures were mostly concocted by economists (hardly experts on oil reserves!), who blindly assumed that just because the world demanded 120m bbl/day that it would be magically supplied by the cornucopian horn of plenty. And they also took seriously the claims of the OPEC states , i.e. the estimated reserves that lots of people, included those working for the US government, now think are wholly inaccurate!

It should be noted that the IEA until recently, didn’t believe peak oil would ever happen, but they’ve now more or less conceded that conventional supplies may have already peaked, or are not far off it, relying on unconventional sources to increase output and those (possibly) fictitious OPEC reserves to sustain current output levels.

Again, I’m not alleging any “conspiracy theory” here. It’s probably more a case of nobody (OPEC, the IEA, the Saudi’s nor the USGS) wants to be the bearer of bad news, as we have a nasty habit in this world of shooting the messenger. As I pointed out earlier nobody really knows what the situation is regarding Middle East oil. The USGS reporting figures substantially below the official OPEC ones would be tantamount to the United States government calling the OPEC rulers a pack of liars (which would be totally against diplomatic decorum).

Also if peak oil is indeed imminent, the economic consequences for the US are not good. For the US to pay off its near $100 trillion+ in debts is dependent on continued economic growth, and if this doesn’t materialise, then it will be impossible for the US to honour this debt, a good deal of which is borrowed from other countries (including a number of OPEC states) on the assumption that they’re economies also continue to grow (i.e ultimately the deposit on all this money is that oil under the deserts, so if it isn’t there then both borrower & lender are in serious trouble). In short, even the hint of a possible imminent peak in oil production could result in a market liquidity crisis (and a run on the dollar) that would make the recent sub-prime crisis, or the current eurozone debt crisis, pale in comparison……And it would be awfully embarrassing if it turned out afterwards that actually peak oil wasn’t imminent after all.

Thus there is similarly a perverse incentive for US government officials not to talk up the issue of peak oil, or at the very least keep such talk quiet and below the radar of the mainstream media (we don’t want Fox News running pieces on Peak oil as they’ll inevitably portray either the extremes of the doomers or the Cornucopian’s).

 

Question 8 – How do we know that the theory of peak oil is correct?

We don’t! Welcome to the wonderful world of scientific uncertainty. But we do know that we are dealing with an ultimately finite resource and it will eventually be a case of either run out of oil, or oil will just become so expensive to produce and use its value as an energy sources will diminish.

One common criticism of all the “peak oil pessimists” is that they have constantly been forced to revise their figures forward in time, largely because they only consider geological factors, neglecting the many economic, political and environmental factors at play.

The recent recession, for example, led to a major drop in oil prices and output, which would presumably push back the date of peak oil somewhat. Furthermore, a spike in prices (such as happened in 2007) makes many smaller fields economically viable, putting more oil on the market, and pushing the peak oil date back further still.

The peak oil pessimists acknowledge these factors, as anyone who has read any of their publications will realise. They would point out that, as noted earlier we can only raise output, once the “low hanging fruit” is gone, by substantially raising oil prices – which will of course kill of demand. Whether we run out of oil, or most of it stays underground (or locked away in bank vaults!) is sort of a moot point, as its use to us as a cheap source of energy will have run its course. They also acknowledge that the “peak” in oil production maybe more of a “plateau” once we factor in the above mentioned socio-economic factors. This involves us reaching a form of “Nash equilibrium” of oil output in which high prices manage to sustain production at some fixed level for an extended period.

Again, while many peak oil proponents recognise the possibility of this socio-economic ceiling, it is very difficult to assess such factors, while geology is something that they can speak with some authority on. While this plateau effect may indeed serve to delay the date at which depletion commences (i.e. constantly declining oil output) it cannot prevent it from happening, and indeed it may already be happening (as the IEA figures suggest). At some point however (years or maybe decades away), we reach the other end of the plateau and oil production begins its inevitable slide.

And a plateau means essentially zero growth. One of the key points that need’s to be got across is that most economists and politicians are assuming significant growth in oil production (and thus economic growth), which the peak oil proponents counter is at odds with geological reality. Furthermore a plateau means no more oil surpluses. As noted earlier, while it’s possible that OPEC still has some “swing” capacity that they can bring online from time to time, this is going to be gradually eroded away. Thus if anything occurs to interrupt the flow of oil onto the world market, whether its strikes in Canada, pirates in the Indian ocean, Hugo Chavez needing a key part, a revolt in Libya, OPEC will soon no longer be able to restore order to the market by just pumping a bit more oil. Any temporary shortfall will mean prices skyrocketing and somebody somewhere having to do without and all the negative effects that this (and temporary fuel shortages) bring. These include, higher inflation, reduced economic activity, high food and commodity prices, provoking civil disorder, etc.

And as time goes on, these effects will get worse and worse. The world will go through an extended period of economic malaise, with each recession seeming to be just that bit worse than the last and taking that little bit longer to get out of. Until one day we won’t come out of recession, the world will be in a phase of more or less constant economic decline – until this energy deficit is somehow solved or we downsize out liquid fuels demand to something more sustainable.

 

Question 9 – We’ll know Peak oil’s happened when the light go out, right?

Wrong! This is a myth that needs debunking. Peak oil represents a liquid fuels crisis (or indeed arguably a crisis of cheap liquid fuel) and very little electricity these days is generated by oil. A quick statistic (from the IEA Key world Energy Statistics Report 2011), 61.4% of all the world’s oil production is used by the Transport industry, 16.2% by the non-energy users (plastics, fertilisers, pesticides, pharmaceuticals, etc.), a further 9% is consumed in various industrial processes and the balance of 12.9% is consumed by “other” applications, such as home heating oil, agricultural use (tractors, etc.) and standby power generation (no figure’s given, but probably only a small fraction of this 12.9%).

Figure 19 – Breakdown of final oil consumption [Credit: IEA 2010]

That said, rises in oil prices tend to push up inflation, so everything becomes more expensive, including electricity. Also much of the worlds electricity is generated from fossil fuels (coal and natural gas), which have a direct link with the oil market in some way (oil fired machinery is used to dig coal out of the ground and natural gas often comes out of the same hole in the ground as oil). Also, any rise in oil prices causes the major industrial users of oil to switch to or increase their consumption of natural gas.

So inevitably post peak oil, natural gas prices and electricity prices will rise rapidly. So rather than the light suddenly going out due to peak oil, instead we’ll probably turn them off ourselves as we want to cut down on those electricity bills!

Figure 20 – World electricity generation, by source [Credit: IEA 2010]

There is a threat to the electricity supply systems of certain countries (notably the UK and USA) run under Lassie-faire market rules, but this is completely unrelated to peak oil. It boils down to the fact that governments have made various high minded commitments to renewables, or nuclear power or coal, etc. then left it to the power companies to sort out the details and financing. Of course the power companies aren’t going to spend billions on new power stations until they have some sort of subsidy system arranged or a signed confession from the government as to what exactly its future energy strategy is. There’s little point in a company investing, say $10 Billion on wind power in Britain, if the government turns around tomorrow and hand half the electricity market over to the nuclear industry (or visa versa). And while this staring contest between government and corporations of who blinks first continues, power stations are aging and going out of service, demand is rising and the capacity being brought on to replace them is well below what’s needed.

Obviously if someone doesn’t blink soon, then the lights might well go out, but it will be a failure of this lassie-faire policy and not necessarily peak oil that’s to blame. Indeed once we wake up to peak oil it could have the positive outcome of a more involved government in setting energy strategies and providing the seed money to get badly needed energy projects off the ground. Similarly industry will realise that they need to get off the fence as they will simply go out of business if they don’t start to commit to these projects, even though this will involve shouldering a certain level of financial risk.

 

Question 10 – So when will we know we’ve passed peak oil?

The simple answer is – long after it’s happened! If the 2006 date of a “peak plateau” hinted at by the 2010 IEA report is accurate it will be at least another few years before we’ll know for sure. And of course that only applies for conventional sources of oil, it will still be sometime yet before all supplies of oil (i.e unconventional resources and conventional sources) peak, although we are probably talking about a matter of years or maybe a decade at most.

To be blunt, the question of picking a date for the day of peak oil is something I’d personally leave for future historians to worry about. What we need to do is accept its going to happen, sooner rather than later and we need to do something about it now, not rearranging deck chairs on the Titanic.

For the record, I threw my own two cents into the ring some time ago. Back in 2003 and picked 2011 as the likely date for peak in conventional oil with 2014 the likely tipping point for all oil resources, though again this plateau effect might stretch things a few years beyond this. Am I right? I’ll get back to you in 2020….not that anyone’s going to care then!

But yes, it would be nice to know when we’ve passed the oil peak, so if the White House or OPEC aren’t going to announce it, how will we tell?

I would answer by saying we’ll probably know we’ve passed peak oil when we stop complaining about the constantly rising price at the pump in the garage. We’re just glad the garage actually has oil available today! As I noted earlier, one of the first effects of passing peak oil is the reduction or elimination of any swing capacity in the world’s oil production system. Supply will essentially just about balance with demand. Thus any unexpected breakdown in the system (e.g. a refinery going down a revolution in a oil producing state) or an unexpected rise in demand (an unusually cold start to winter increasing heating oil demand) could result in short term shortages in certain parts of the world from time to time.

More importantly, such events will trigger sudden sharp spikes in the price of oil as everyone reacts to the shortfall by trying to buy up oil to make sure they aren’t the one left without a seat when the music stops. Of course, while the politicians and media will vaguely mention peak oil, the blame will always be put on the particular event “…a pipeline burst in Alaska caused petrol stations in the US Mid-west to run dry overnight….A rebellion in Angola is responsible for big queues at the petrol pumps in Beijing tonight….”

Figure 21 – Petrol queue in China during a Diesel Shortage

Another effect of rising oil prices will be that certain economic relationships will begin to break down. Some people who commute to work by car will eventually find they can no longer afford to do so, resulting in them either changing jobs or moving house (with a knock on effect on the economy and house prices). This could have a major impact on those living in suburbia, who are by and large the most dependent on oil (to heat their homes, drive to work and the supermarket as well as get products too the store in the first place). An interesting series of articles on this topic can be found here.

Certain products on the supermarket shelves will rapidly increase in price (anything that comes from overseas in particular), then eventually disappear from the shelves altogether. While in some cases this item might be replaced by a locally sourced alternative, in many cases it will not. This will probably hit us in remarkably unexpected ways. Much of the cheap plastic “crap” we get from China cannot be provided sustainably in a post-peak oil world, certainly not at the prices we are used to. We cannot grow Mango’s year round in Northern Europe, nor roses or strawberries year round either (seasonally is another matter!).

As noted before, these effects will have a deleterious effect on the global economy. It won’t be anything dramatic (at least at first) more of a slow creeping effect.Tourism for example, which is heavily dependant on cheap transportation to get international travellers around, will suffer pretty badly. Countries heavily dependant on tourism (such as Greece! and they think they’ve got problems now!) will be very severely effected. Obviously less tourists means less airline passengers, so probably a few bankruptcies here also. Which means less orders for new aircraft and parts, which will have an immediate knock on effect in Industrial countries. Similarly, higher petrol prices means less car journey’s so less cars being built (bye, bye a few motor companies) and less people employed in the sector (redundancies for many truck drivers, taxi drivers, etc).

Of course once the money markets do wake up to the fact we are in the post-peak oil world, one can expect some pretty dramatic events. Much of what the money markets does is to essentially make bets on future economy activity, and nearly all of these bets assume constant global economic growth (if not in country X then in country Y, with company D’s shares rising rapidly as company Z’s shares decline). Almost nobody in the markets is betting on a period of global economic stagnation lasting for decades, nevermind a prolonged global economic decline. Obviously once they realise that this isn’t just going to happen at some distant future date, but is actually already happened right before their eyes, there will be pandemonium as many traders are forced to rapidly change their positions. This economic transition process may well have certain dramatic effects, and although it need not necessarily bring down the global economy, it could get pretty bad.

For example, as I pointed out in an earlier post, much of the vast US budget deficit amounts to an enormous economic bubble as it was borrowed on the assumption that the US economy will continue to grow, which depends on oil output globally continuing to rise and that this oil will continue to be traded in dollars. Also quite a bit of this debt is borrowed from oil rich Gulf States (and thus the security on this debt may well be oil that is merely a figment of everyone’s imagination). If it looks likely that peak oil is going to make it impossible for the US to pay off its debts, then obviously anyone holding lots of US government bonds is going to be looking to dump them. Lots of US bonds being junked will drive down the price of the dollar and drive up inflation in the US (already bad due to rising oil prices), which will put in doubt whether OPEC will (or can afford to) continue to trade oil in dollars. In short one of the first effects of peak oil could be a full scale run on the dollar, probably provoking a serious economic recessions, if not a depression. On the plus side, at least it could lead to less wars if you believe certain theories!

And anyone in China or Europe reading this and feeling smug, remember that we’re all joined at the hip thanks to globalisation. The euro has enough problems as it is. If the US economy goes into a prolonged depression then US citizens won’t be shopping much in Wal-Mart anymore (so no Chinese overseas export market!) or buying those expensive Italian sports cars, nor will American banks be handing out generous overseas loans anymore. Indeed the creditors of some now bankrupt US firms will instead be calling in foreign loans. And the US will probably be trying to solve its own debt problems by selling off its holding of foreign currency reserves and its gold reserves, or indeed simply defaulting on its debts to foreign lenders (either officially or defacto, e.g they deliberately print lots more dollars than necessary, provoking hyper-inflation and making said debts worthless). And it won’t be just be the big banks and national governments who will be defaulting, but many ordinary people will be giving the bank manager the two fingers as regards their personal debts and mortgages (on those suburban homes they can no longer afford to live in). Enough of us default on our personal debts all at once and it will make a disorderly default by Greece pale in comparison.

And the chaos will not be restricted to Wall Street. Food prices will inevitably rise. While talk of mass starvation by some “Malthusians” is, I would argue unlikely, certainly there will be sporadic outbursts of anarchy around the world from time to time, not to mention fist fights at petrol stations, and increase in such crimes as petrol/heating oil theft (and metals theft as metal prices will rise rapidly too), and that sort of stuff.

So in short, the day these sorts of things become “normal” is they day you’ll know we’ve passed peak oil.

 

Question 11 – But I read the other day about this big oil find in Falklands/North Sea/Laalaa land, where they say that 10 Billion barrels of oil have been found, surely that’ll sort everything out?

Simple answer….no! that 10 Billion barrels is but a drop in the ocean compared to our existing 1-2 Trillion or so barrels of oil in proven reserves. Also, again there’s that light blue wedge in the IEA graphs, they’ve already factored in the discovery of some oil fields we don’t yet know about, so it doesn’t change things by much. Also just because a company announces they’ve found X amount of oil doesn’t mean they’re going they’ll produce it all. More often than not, such announcements are for the benefit of stock markets to give the oil companies shares a bounce at a critical time (you’ll often find buried in the text of the press release an admission that the oil was discovered months earlier).

As noted earlier a 35% recovery rate is roughly the industry average these days, so only a fraction of that oil will ever come out of the ground. And indeed, they might not produce any oil from this find. It depends on where it is located and how expensive it’s going to be to set up a production system and what the current oil price is. Peak oil doesn’t mean the oil price will always be high, in the regular recessions that will be a feature of it prices may well fall, as it did back in 2007.

And furthermore peak oil isn’t a matter of us running out of oil, its a decline in our ability to match increasing demand with diminishing supply. A 10 Billion barrel field would typically generate between 1.5 million and 0.5 million bbl/day (exactly how much depends on a host of technical factors)…that’s a mere 1.8-0.6% of current global demand. Post peak oil we could face a global depletion rate of between 2-6% per year! So like I said, great news if you have shares in that company, but a drop in the ocean in the grand scheme of things.

 

Question 12 – Assuming peak oil happens soon, what sort of depletion rate are we facing?

The general consensus is production rates will decline by an average of between 2.5 to 6% per year post-peak oil. Note that this represents an averaged global figure, individual fields respond in different ways to oil peaks, some can experience a decline of 20% or more in a year, others will have a more gentle decline rate.

Where between the noted extremes the global decline rate will prove to be is difficult to assess. As we are dealing with a finite resource, the slope of the decline curve will become ever sharper the longer it takes for us to exceed peak (the slope of the line can change, but the area under the curve representing the finite amount of oil cannot). Thus the closer we are to peak the more credible is the smaller figure. Indeed as we don’t appear to be in the decline phase yet the lower figure, is arguably not very credible anymore. The longer it takes then the higher figure becomes more likely…so in some respects the “peak oil pessimists” aren’t really that pessimistic, it’s the Cornucopians who are the real pessimists as they have us getting by to 2030 no problem and then driving off a cliff!

Indeed the current consensus is that of a probable decline rate of around 4-6% of global production per year, post peak oil. To put matters in prospective, the current global oil production rate is around 75-80m bbl/day. A 3% per year depletion rate would means a loss per year of 900 million barrel’s per annum of production or roughly 2.4m bbl/day of oil production. A 6% depletion rate, if it occurs when it hits this 95m bbl/day predicted by the IEA, would equal a loss rate of just short of 5.7m bbl/day of production. Ghawar field the world’s largest oil field by way of example produces 5m bbl/day. So to offset this depletion rate (and maintain existing demand) we’d need to find another Ghawar field every year and then some!

So for the sake of simplification (massive simplification!) let’s assume a 3% a year rate of depletion. I’m also going to convert from Barrels of Oil into kWh/yr, as presumably any energy source we can envisage as a replacement will likely be measured in such terms. In figure 22 below I’ve plotted out what such a decline rate would look like. In the first year of decline, 1.5 trillion kWh’s of energy production capacity is lost (equivalent as I will show in question 13 to a little less than half the world’s nuclear plants being taken off line in a year). Over a twenty year period, 21 trillion kWh’s goes, equivalent to 13.5% of total global energy supply at present. By 50 years post peak oil, output is down to just 11.5 Trillion kWh/yr, equivalent to just 18 million bbl/day of production (a little more than a fifth of what it is today). This should underline the fact that even this fairly modest and conservative scenario, is quite scary.

Figure 22 – Decline of oil based energy, assuming a 3% per year decline rate

The decline rate per year will be in excess of 1 trillion kWh/yr in fact for the first 15 years. After that it averages out at around 750 billion kWh/yr of lost energy production capacity per year (over the remaining 25 years). So to offset peak oil, we’d need to find some way of installing this much generating capacity, each year, just to offset peak oil.

Of course this implies that the magnitude of the problem will be front loaded, but of course as time passes we’ll then likely be well into the post-peak gas era (and possibly peak coal and uranium, more on that later). And again even this assumes that the depletion rate remains steady at 3%, while in all probability it will accelerate as depletion sets in.

 

Question 13 – All this stuff about bbl/day, mtoe, cfg’s, STC’s is too confusing, what do all these numbers mean in real terms?

If the term millions of barrels of oil is lost on you, let me put this in terms easier to grasp. Let us assume our median case depletion rate of 3% of current production per year, that works out at a loss of 2.4m bbl’s/day. Spread over a year this is equal to:

• The energy output of 169 1GW power stations for a whole year

• 1.5 Trillion kWh’s, spread over a year (as noted)

• The average annual fuel consumption of 81 million cars (UK standards)

• The electricity usage of 454 million homes (UK standards)

• The total energy use (transport, heat & elec) of 63 million homes (UK standards)

• The annual energy consumption of 1,027 jumbo jets

• 118.2 mtoe (million tons of oil equivalent)

• 213 million stc (short tons of coal)

• 5.9 Trillion ctg (cubic feet of natural gas)

In the first year of depletion we must either find a new energy source equal to the above (i.e build 169 new power stations, and again that assumes 100% conversion efficiency!) or turn off one or a combination of the other headlines, just to keep pace with peak oil depletion (so we could say, get rid of 500 747’s and build 84 GW’s of new power stations. The year preceding this we loose a further 3% (around 2.3m bbl/day of production) and would need to turn off yet more loads or find another 1.43 Trillion kWh’s of generating capacity, and so on. This should hopefully underline the enormity of the problems we face.

 

Question 14 – You said that only 35% of the oil in a field is typically recovered, why can’t we go around and suck out some of the remaining 65%? Even if we could get say 20% (of the 65% = +13%) of that out it would greatly increase out supply of oil?

We already are! Such exploitation is already underway (referred to in the industry as Enhanced Oil Recovery or EOR), and the IEA figures mentioned earlier already take this production into account. Indeed those 4-6% depletion rates would turn into 6-9% depletion rates without EOR! However, even the IEA acknowledge that, at best, we couldn’t get more than 6 million bbl/day out of such projects globally (by 2030 mind, see table 1 of Aleklett et al, 2010) – around 6% of where demand will then be. Again, Miller 2011 mentions this in his critique of IEA policy. And the critics here argue that these figures are wholly over optimistic (again see Aleklett et al, 2010).

Part of the problem is that many of the older fields that it is suggested we use such techniques on have since been abandoned. It would mean rebuilding an entire pipeline network and drill apparatus system, which in many cases will outweight the financial benefits of pumping the remaining oil out. Also as noted earlier, the final phases of oil production in a declining field often involves processes such as water flooding and steam injection. This can mean by the time you cap that well there’s more water down there than oil, so its not worth anyone’s while trying to access it anymore.  If the underground geological changes brought on by oil production have led to a loss of the trapped oil, or water breaking in (and again contaminating the well), then there is nothing much down the bore hole to tap into. So as always, it can help (a bit!) but that’s all.

 

Question 15 – It’s all the Liberals fault, if they’d let the oil company’s drill in the ANWR or build new refinery’s everything would be fine!

You need to stop listening to Fox News (and quit the tea bagging and drink more coffee…black like your heart me thinks!). These are red herrings that certain people in power like to dangle from time to time, as it suits their agenda…which is generally a case of deflecting people’s attention onto minor issues which don’t really matter (why do you think the Republican Party’s always going on about Abortion & Gay marriage? It’s because they don’t want anyone moving on to discuss other more important issues like health care reform or cuts to the military budget or higher taxes for the wealthy).

If the oil companies suspect that peak oil is around the corner do you think they are going to spend many billions of pounds and several years building a new refinery, operate it for a few years, then post-peak oil realise they have a surplus of refining capacity (because less oil is now being produced each year) and have to close down a plant with a 50 year operating life after maybe only 10 years of production? Which school of finance did you study in….oh, wait don’t tell me, the same one who gave us those subprime mortgage bonds ;)

As far as the ANWR goes, there might oil down there, or there might not be any viable deposits of oil. There seems to be a blind assumption that there is, and the bad news is that such assumptions have often proven wrong in the past. Even if there is, the maximum speculated output (in the event of us finding a mega sized oil field….which we’ve not done since the 1960’s) is in the order of 0.7 million bbl/day…or about 0.9% of current global production (where do you suppose we get the other 99.1% from!). And of course there could be a good deal less oil in the ANWR than this, so say we actually get an output just over half this figure 0.4m bbl/day. It will be a good few decades before such oil can be brought on stream, by which stage demand will have risen to at least 90m bbl/day (according to the IEA)…so that would be just under 0.44% of global demand (99.6% of the oil has to come from where?) or about 2% of US oil demand (where does the other 98% come from?). In short ANWR would be a drop in the ocean in the grand scheme of things, if of course there’s any oil there in the first place!

Figure 23 – The impact of ANWR Drilling on the US oil picture, based on DOE figures [Credit: hydrovolts.blogspot.com]

Now you might well argue that 0.9-0.4% of global oil demand (2% of US demand) being met by ANWR is better than nothing, but we have to look at the wider picture here. There are certain bits of the planet we’ve decided to set aside from development because we recognise we want to leave something for the other species of life on the planet to inhabit, not to mention somewhere for us and our children and future generations to enjoy. If oil were to be “suspected” nevermind found under the Grand Canyon and a company set up a drilling rig (or alternatively we dammed the river for hydro electricity and flooded the canyon), or say we built a huge big geothermal plant on top of Yellowstone national park, I suspect everyone in America would be up in arms about it. Just look at the fuss over the Yucca mountain nuclear waste dump for an example. The only difference between the Grand Canyon and ANWR is that the Grand Canyon is visited by millions of people annually, while the ANWR is buried in the wilds of Alaska (out of sight out of mind). If ANWR drilling is allowed then it stands to reason that all other national parks must be opened up to resource exploitation with all the problems and destruction that this entails.

The only people seriously promoting ANWR drilling (I seem to remember even John McCain was against it) are a small number of oil companies and politicians who stand to gain financially from it, as well as a large number of “sheep” who watch too much Fox News and drink far too much tea.

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